New Analysis Warns Investors of Non-Disclosure by Automakers in Europe

New Analysis Warns Investors of Non-Disclosure by Automakers in Europe

Companies selling autos in the European Union are not disclosing carbon dioxide (CO2) reduction commitments or strategies to comply with a seven-year-old European Union agreement, according to a new analysis released by the World Resources Institute (WRI) and the Sustainable Asset Management (SAM) Group.

"It is unacceptable that, with only three years left to comply with the ACEA Agreement, auto companies have done little to disclose in their annual reports to investors how they plan to meet this voluntary target," said WRI's Amanda Sauer, lead author of Transparency Issues with the ACEA Agreement: Are Investors Driving Blindly? "The problem with the ACEA Agreement is that nobody knows what the auto companies are planning to do to bring the industry to its 2008 target."

BMW has disclosed more of its CO2-reduction strategies than the other car companies analyzed, although it could be at risk of substantial future costs under the agreement because it appears to have the highest fleet-wide CO2 emissions in the industry. Yet the report finds that without disclosure on company commitments to meet the agreement, it is impossible to know the cost exposure for BMW or any other company, even though these costs could be significant.

The ACEA Agreement establishes industry-wide targets for average vehicle emissions from these vehicles to reach 140 grams of CO2 per kilometer (gCO2/km) by 2008, with the possibility of extending the agreement to 120 gCO2/km by 2012. The industry had reached a fleet average of 165 gCO2/km in 2002, requiring additional 15 percent reduction by 2008 to meet the target. Although the scheme is voluntary, the European Commission has repeatedly stated that it will formally regulate the industry if it fails to meet the 2008 target.

ACEA stands for les Association des Constructeurs Europeens d'Automobiles or, in English, the European Automobile Manufacturers Association. The agreement was signed in 1998 between the manufacturers association, the auto companies, and the European Commission.

The WRI and SAM report examines how this lack of disclosure around the ACEA Agreement could impact carmakers by using two possible scenarios to illustrate the range of costs companies could face. The companies analyzed are BMW, DaimlerChrysler, Ford, Volkswagen, Hyundai, Fiat, PSA Peugeot Citroën, Renault, General Motors, Nissan, Toyota and Honda. Aside from Sauer, the report is co-authored by WRI's Fred Wellington and the SAM Group’s Philipp Mettler and Gabriela Grab Hartmann. The 12-page analysis can be downloaded from the WRI Web site.

"Along with adding more low-carbon vehicles to meet the 2008 regulations, companies will have to modify their existing models, including adoption of incremental technologies to improve fuel efficiency, along with the further penetration of diesels," Mettler said. “Without knowledge of how the commitment will be met, it is impossible for stakeholders to determine how cash flows and debt levels of each company will be affected.”

The analysis evaluates the cost implications of two scenarios that ACEA could use to meet the industry-wide target in 2008. The two scenarios are:

A corporate average emissions-intensity approach, under which each company’s fleet is assumed to be required to meet the 140 gCO2/km standard. This is a similar framework to the CAFE standards used in the United States, but it would be applied across the whole fleet rather than having separate standards for cars and light trucks. This approach would most benefit companies that already have relatively fuel-efficient fleets, such as Fiat, PSA Peugeot Citroën, Renault, General Motors, Nissan, Toyota and Honda.

A uniform percentage improvement approach, under which each company is required to improve its own fleet by an industry standard of 15 percent by 2008. This approach would most benefit companies with the least fuel-efficient fleets, such as BMW, DaimlerChrysler, Ford, Volkswagen, and Hyundai.

The authors found no way to determine the average costs for companies to meet requirements of the ACEA Agreement under the two scenarios. However, BMW, PSA, Fiat, and DiamlerChrysler stand out as having a wide-range of potential cost exposures, while Toyota and Honda face relatively similar costs in both scenarios.